Federal Reserve Bank of Minneapolis President Neel Kashkari expects the U.S. central bank to lower interest rates two more times this year, pointing to rising concerns over a cooling labor market.
In a Friday essay, Kashkari backed the Federal Open Market Committee’s (FOMC) decision earlier this week to cut rates by a quarter point—the Fed’s first move since December—citing the risk of higher unemployment as the main reason. “The risk of a sharp increase in unemployment warrants the committee taking some action to support the labor market,” he wrote.
Kashkari, who participates in FOMC discussions but does not vote in 2025, has consistently forecast two rate cuts this year. The Fed still has two meetings scheduled, in October and December, leaving room for further action.
However, Kashkari stressed that future rate decisions will depend on incoming data. He said the Fed could pause if job growth picks up or inflation accelerates, and even raise rates again if necessary. Speaking on CNBC, he described recent and possible future cuts as “insurance” designed to steady the job market while inflation pressures gradually ease.
U.S. unemployment rose to 4.3% in August, its highest since 2021, signaling a slowdown in hiring. Kashkari noted that reduced immigration partly explains weaker labor demand, but warned that job softness goes beyond demographic shifts. For now, he sees unemployment as a bigger risk than inflation, which he expects to remain above the Fed’s 2% target but not climb sharply higher.
Kashkari also revised his estimate of the “neutral rate” of interest—the level that neither stimulates nor restrains growth—to 3.1%. He linked the shift to rising investment in technologies like artificial intelligence and to more expensive foreign capital. This, he suggested, could blunt the impact of Fed rate cuts on areas such as housing.
On central bank independence, Kashkari cautioned against political interference but emphasized that the Fed’s recent meeting was free of politics. He expressed confidence that both Congress and the courts continue to support the Fed’s autonomy.
As the year progresses, Kashkari’s remarks highlight the delicate balance the Fed faces: supporting a softening labor market while ensuring inflation trends back toward its 2% goal. With two more potential cuts still on the table, upcoming economic data will play a critical role in shaping the Fed’s next moves.
